The COVID-19 crisis was a game changer for business – showing us that digital transformation is not just hype, it is a necessity. This pandemic was a wake-up call for all businesses, whether startups, SMEs or large entities, to incorporate digital strategies in their operations as digital activities and online transactions continue to rise in the country.
For years, paper-based or manual invoice processing continues to be the leading cause of process bottlenecks as its long, tedious, and multi-point nature leaves the door open to a myriad of problems, such as human errors, omissions, fraud, and non-compliance.
One way to address these challenges is by digitalizing the invoicing process. Thus, recently, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) 8-2022, to prescribe the policies and guidelines for the implementation of Section 237 and Section 237(A) of the National Internal Revenue Code (NIRC), as amended by Republic Act (RA) 10963 or the TRAIN Law, through the use of Electronic Invoicing/Receipting System (EIS). The regulations mandate all taxpayers engaged in the export of goods and services and electronic commerce (e-commerce), and those under the Large Taxpayers Service (LTS), to issue electronic receipts or sales/commercial invoices, as well as to report their sales data to the BIR at the point of sale, within five years from the effectivity of the TRAIN Law (i.e., on or before Jan. 1, 2023), except for taxpayers engaged in e-commerce.
Under the RR, taxpayers who are mandated to adhere to these regulations must comply with the following:
1. Issue e-receipts/invoices, transmit data electronically, and develop a Sales Data Transmission System based on the Standard Application Programming Interface (API) guidelines, which shall be certified by BIR through EIS.
2. Enroll prior to the actual transmission of sales data to EIS for security purposes.
3. Submit an application for the EIS certification (EIS CERT) subject to online verification if compliant with the BIR requirements and application for the issuance of a Permit to Transmit (PTT) to allow the transmission of sales data to the EIS, regardless of the role of or arrangement with the software provider. Sales reporting shall be done immediately for transactions on the day following the issuance of the PTT.
4. Transmit encrypted sales data in Java Script Object Notation (JSON) file vformat in real-time or near real-time, provided that it should be done within three (3) calendar days from the date of the transaction. Failure to transmit sales data at the time required will result in a corresponding penalty; and,
5. Submit a summary list of purchases and importations (SLP and SLI). Taxpayers using the EIS shall no longer be required to submit a summary list of sales (SLS).
On the other hand, taxpayers who are not covered by the mandate may also opt to issue e-receipts/invoices in lieu of manual receipts or invoices and may comply with the provisions of the RR.
These regulations also reiterated the other policies on the issuance of receipts or invoices in relation to the implementation of Sections 237 and 237(A) of the NIRC of 1997, as amended.
In line with the BIR’s digital transformation program, the Department of Finance (DOF) has taken the first step through a pilot project in July 2022 and has tapped the country’s top 100 large-scale taxpayers to launch EIS. This was made possible with the help of the South Korean government, through the Korean International Cooperation Agency (KOICA), which commissioned the services of Douzone Consortium for the undertaking. In South Korea, mandatory e-invoicing for all corporations and certain individuals has been up and running successfully since 2011. Thus, it is considered the leader in e-invoicing in Asia, setting the example for the Philippines, as well as other countries such as Indonesia, Malaysia, and Brunei. In fact, EIS in the country is said to be relatively similar to South Korea’s Electronic Tax Invoice System (i.e., e-Tax).
The concept of EIS is not novel in the country. However, it remains underutilized not only by local entities, but also by multinationals that have long adopted e-invoicing in their business operations in foreign countries. Moreso, the worldwide adoption level remains relatively low despite the undeniable advantages of implementing EIS for both the government and the taxpayers.
The shift to the mandatory implementation of the EIS demonstrates the government’s commitment to adapt and embrace today’s increasingly digital and hyperconnected world. However, implementing the digital transformation in the Philippine tax system will not be easy – entailing hefty investments in time and money to ensure its effective execution and operation. Regardless of anticipated challenges, taxpayers should work hand-in-hand with the government, as the proper and careful implementation of EIS will help taxpayers’ with their reporting and compliance, as well as reduce the cost of taxpayer transactions. Moreover, this will address issues on business transaction transparency and strengthen the government’s audit capabilities for more tax collections – something that we need in the continuing response to and recovery from the adverse effects of the COVID-19 pandemic.
Nathaline Thea C. De Veyra is an associate from the tax group of KPMG in the Philippines (R.G. Manabat & Co.), a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in transfer pricing practice and in general corporate tax practice by the International Tax Review. For more information, you may reach out to tax associate Nathaline Thea C. De Veyra or tax partner Leandro Ben M. Robediso through ph-kpmgmla@kpmg.com, social media or visit www.home.kpmg/ph.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG in the Philippines.